The invoice financing industry has grown rapidly over the past several years and now provides a significant opportunity for savvy finance brokers to earn additional revenue from Australia’s more than two million Small and Medium Enterprises (SMEs).
Research by challenger brand Australian Invoice Finance shows country-wide invoice financing volumes are around 3.9% of Australia’s GDP compared to 19% in the UK.
There are other compelling reasons why finance brokers should be considering invoice finance as a lending option for their business clients, beyond just getting a slice of this growing pie.
First, major banks have tightened their lending terms and conditions and many businesses are finding it more difficult to access loans through traditional channels.
Secondly, SMEs continue to encounter cash flow shortages, which significantly impact their operations and growth opportunities. According to the latest research by Dun & Bradstreet carried out by illion, only 66.9% of Australian businesses are paid on time, and the average late payment time is 12.6 days, which can leave businesses struggling to meet tax and other obligations.
Finally, Australian businesses are increasingly reluctant to use property as collateral because they do not want to assume unnecessary risk. By learning what invoice financing has to offer and sharing this with their clients, finance brokers can help address these concerns in a way that benefits all parties.
What is invoice finance?
Invoice financing, also called cash flow financing or factoring, is the umbrella term that describes lending which is backed by a company’s expected cash flows, determined by the value of outstanding customer invoices for work done or goods sold.
It is a simple and effective way for SMEs to smooth out cash flow troughs. The biggest benefits are fast 24-hour approval and access to funds, lending up to 85% of the value of outstanding invoices and the fact that property is not required as a security.
What is the invoice finance opportunity for brokers?
The growing invoice finance industry provides many opportunities for finance brokers to diversify their income streams. Finance brokers have control over the extent they are involved with each transaction. Remuneration includes desirable upfront and trailing commissions for the life of each deal.
Any business selling goods or services to other businesses on credit terms (e.g. 30 days to pay from the invoice date) are invoice finance prospects. These can include manufacturers, labour hire providers, logistics and transport operators, as well as wholesalers. Sectors where milestone payments are most common, such as IT or construction, are also likely to appreciate cash flow finance solution ideas.
While candidates for invoice finance are generally those looking to enhance cash flow, invoice financing is being increasingly used for non-traditional purposes, such as mergers and acquisitions, the sale of a business, shareholder disputes and even divorce situations.
By Greg Charlwood, Managing Director, Australian Invoice Finance